“I’ve never heard of putting such a big number out on a day when you can’t do anything about it. Anytime that I can’t address a problem in our portfolios, I’m not a happy camper.”
– Investment Strategist quoted in The Wall Street Journal, April 1, 2010.
In a quirk that is causing a great deal of heartburn on Wall Street, the Bureau of Labor Statistics will release the March Employment Situation Report on Good Friday, April 2, 2010. The stock market will be closed for the entire day while bonds will trade only until mid-day. The jobs report is always highly anticipated but the release of the ADP Employment Report yesterday has increased the suspense because it showed a decline of 23,000 private sector jobs in March. This has cast doubt on the consensus estimate for the BLS report of approximately 200,000 new jobs in March. The BLS report includes government employment, such as census workers, while the ADP report only tracks private employment. It is likely that the BLS report will show job gains for March but now observers are questioning whether the number might be far less than the 200,000 previously estimated.
Does it make any sense for investors to lose sleep over the inability to trade stocks on the BLS news on Friday morning? For a number of reasons, the answer is a resounding no.
- Initial Estimates are often incorrect. The BLS Employment Situation Report is an estimate that is subject to revisions in the future which in many cases can be significant. A quick look at the estimation methodology for the report demonstrates why this is the case. Techniques such as the birth/death model, routinely lampooned by Barron’s Alan Abelson, illustrates why initial estimates are often just fanciful guesses. The BLS economists are doing the best they can with the data available to them and are quite open about the risks associated with the model.
- Macroeconomic Factors in general should not drive investment decisions. Many highly successful value investors including Warren Buffett have routinely advised investors to ignore macroeconomic factors when making investment decisions. The economic depression (“recession” hardly does justice to the last 18 months) has cast some doubt on the idea that macro factors should not be considered, but a broad consensus still exists in the value investing community that bottom up analysis should form the basis for investment decisions.
- The Jobs Report in particular should not be deciding factor in a buy or sell decision. Even if an investor rejects the idea that broad macroeconomic factors should not influence investment decisions, the jobs report is particularly poorly suited to drive an investment decision. The jobs report, even if entirely accurate, simply reports the aggregate level of employment in various sectors of the economy but does not provide sufficient additional insight to justify a purchase or sale of any individual security.
There are many other reasons why investors should entirely ignore tomorrow’s jobs report. If the case for buying an investment is so marginal that the jobs report result will tilt the balance one way or another, there is obviously not enough margin of safety to make the commitment. Likewise, if the jobs report will be the deciding factor in retaining an investment, there is insufficient justification to be holding such an investment to begin with.
Speculators and traders may lose sleep over the fact that 4pm today is the last opportunity to trade stocks ahead of tomorrow’s jobs report but investors have no reason to be concerned and can instead focus on researching opportunities for new investments or can even take a three day weekend without any worries.